Macquarie Lands Lead Role on Mongolia IPO

Macquarie is the latest investment bank to unearth a rich seam of potential fees in Mongolia’s resources sector after securing a lead role in the proposed initial public offering of one of the country’s biggest iron ore producers.

Macquarie and Bank of America-Merrill Lynch have been appointed joint global coordinators and bookrunners for the proposed listing of Altain Khuder, which owns the Tayan Nuur iron ore mine in the southwest of Mongolia, a person familiar with the matter told Deal Journal Australia.

The IPO, which could be worth US$1 billion, is targeted to take place in Hong Kong in the fourth quarter of this year, the person said.

Altain Khuder produces iron ore from the Tayan Nuur mine around 168 kilometers from Mongolia’s border with China and has been exporting to customers including a unit of China’s Baosteel since October 2009.

Following years of minimal investment in resources exploration and development, Mongolia is seeing billions of U.S. dollars spent on finding commercial quantities of copper, coal and iron ore as well as building vital infrastructure such as roads and new railways to accelerate exports to China. The resources boom has led some market participants to give the landlocked country the nickname ‘Minegolia’.

Iron ore exports have risen from virtually a standing start. Exports in the first quarter of 2009 totaled less than 200,000 tons, but have increased more than eight-fold since then to above 1.6 million tons in the fourth quarter of 2011, according to Mongolian government data cited by Australia-listed mining company Haranga Resources.

This prospectivity led China Investment Corp., China’s sovereign wealth fund, to invest US$300 million in Hong Kong Lung Ming Investment Holdings—the owner of Eruu Gol iron ore project near Mongolia’s border with Russia—in 2009. The Eruu Gol mine has the ability to produce around 3 million tons of iron ore annually from an overall resource totaling more than 300 million tons.

ASX-listed companies are also exploring for iron ore in Mongolia, including 51 million Australian dollar-valued Haranga Resources, which owns a deposit close to Eruu Gol. FeOre, a smaller competitor worth A$46 million, owns the Ereeny and Dartsagt projects in central Mongolia.

Mongolia’s iron ore is mostly of a lower quality to deposits in Australia’s Pilbara, but interest is being kindled by its proximity to China, which accounts for roughly 60% of the world’s imports of the key steelmaking material.

The Trans-Mongolian Railway crosses the border in northern China, meaning its natural customers are steel mills in regions like Inner Mongolia and Xinjiang that are already set up to take magnetite ore rather than better quality hematite.

A presentation by Haranga Resources in April signaled that freight costs per US dollar-denominated ton of iron ore concentrate delivered from Mongolia to the city of Baotou in Inner Mongolia region are less than half those of shipping magnetite from Australia.

However, shares in Altain Khuder could be a tough sell to investors amid signs that political risk in Mongolia may be rising.